Why postcodes count when it comes to home loans

In this article:

Lenders are being more selective when it comes to certain suburbs. Here’s why.

We all have suburbs we wouldn’t want to buy a home in, but did you know that lenders have their own views too?

There are certain suburbs where lenders impose lending restrictions, making it harder for you to apply for a home loan.

Known as ‘property blacklists’, these suburbs vary from lender to lender. They are commonly found in regional areas or in cities where there is an over-supply of unit developments.

Why do lenders care about postcodes?

Home loan postcode restrictions are another way for lenders to limit their exposure to risk. When you apply for a loan, each lender has a complex set of criteria by which they judge your application. They’ll look at your circumstances, finances, the loan itself, and the property you plan on purchasing.

The size of the lender, the products they offer and their analysis of the economic market can also influence the suburbs they blacklist.

Ultimately, these postcode restrictions safeguard borrowers from taking on home loan commitments they can’t afford.

Will the restrictions stop me from getting a home loan?

In most cases, lenders will reduce the maximum available Loan to Value Ratio (LVR). The LVR is what percentage of the purchase price of the property you can borrow, and how much deposit is required. If you’re unable to come up with a larger deposit, your home loan application might be declined.

However, the frowned-upon suburbs aren't set in stone. Postcode changes are cyclical, so lenders review their lists as market conditions change.

Take the first step

How does a postcode become blacklisted?

The large lending institutions often have a set blacklist of suburbs. Smaller lenders are more likely to decide on a case by case basis. Here are some of the common reasons a suburb can make the list.

1. Too many apartments

An increasing number of city suburbs with high density or high rise residential buildings are now out of favour.

Where there is an over-supply of apartments, lenders become concerned about supply outstripping buyer demand. If a borrower defaults on their mortgage, the lender wants to know that they can get their money back when they sell.

If a lender has a significant amount of money already invested in one area, they’ll look to limit their exposure. They might impose tougher lending terms or cap the number of properties they lend against in a single development. Some lenders also ban house-buying incentives offered by developers.

2: It’s regional

Many lenders put restrictions on the maximum amount they will lend on properties in small regional towns. They may be put off by the remoteness of an area if it is not well-serviced by road and rail networks.

A small population and lack of housing demand can also work against a regional suburb, as can economic factors like a high unemployment rate.

3: There’s a single industry

Lenders are cautious of areas with a single industry, as property prices and rental returns are reliant on the fortunes of this industry. Mining towns are a good example, as history has shown property prices to soar during peak times and plummet during an economic downturn.

4: It’s prone to natural disasters

If there is the potential for a bushfire, flood or landslide to damage your property, a lender may not be keen to take on the risk. Depending on the suburb’s natural disaster risk rating, they may still lend to you but require a bigger deposit.

What if you want to buy in an affected area?

Talk to your Yellow Brick Road mortgage broker and we’ll be able to tell you which lenders have postcode restrictions in your suburbs of choice.

We’ll help you hunt around for the right loan and give you the information you need to make an informed decision about buying in a certain area. If you want to live somewhere for your own lifestyle reasons, then you may be able to work around restrictions. However, if it's for an investment, choosing an out-of-favour location may not be wise.